Dollar ends rough quarter on a low note

Chinese yuan in focus after U.S. bill passes

By

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch) — The U.S. dollar had the worst quarterly loss in more than eight years in the three months that ended Thursday, heading towards a five-month low against the euro as the resolution of some uncertainties in the region supported the shared currency.

For the session, the dollar waffled between positive and negative territory after a trio of better-than-forecast U.S. data relieved some of the pressure on the Federal Reserve to start a new bond purchase program.

In late North American trading, the dollar index
DXY, -0.05%
a measure of the greenback against a basket of six major currencies, rose to 78.779, compared with 78.768 late Wednesday.

It fell as low as 78.414 earlier, the lowest level on closing basis since late January, according to FactSet Research.

For the month, the index lost 5.3%. It’s down 8.4% since June, the worst quarterly performance since the period ended June 2002.

The euro has jumped 7.4%, the best month for the shared currency since December 2008. It’s up 11.4% this quarter.

The euro
EURUSD, +0.1135%
bought $1.3633, up from $1.3622 in late North American trading Wednesday.

It rose to $1.3683 intraday, the highest level since April.

The euro had gained earlier after a downgrade of Spain and a report on Ireland’s bailout costs removed some uncertainty regarding sovereign debt problems in Europe.

U.S. stocks also gave up sizable early gains, with traders adjusting positions after stocks notched their best month in 71 years.Read more on U.S. stocks.

Helping support the greenback, the Chicago PMI climbed in September to 60.4%, according to reports, a big jump from 56.7% in August. Economists polled by MarketWatch had expected a drop to 55.0%. Read about Chicago PMI.

The dollar had pared some losses after a pair of earlier reports showed first-time U.S. jobless claims declined more than forecast in the latest week and the U.S. economy grew at a slightly stronger pace in the second quarter than the government’ previously estimated. Read about U.S. jobless claims.

The U.S. currency has come under pressure since the Federal Reserve began hinting last week that it could resume buying U.S. bonds if the economy needed the extra support from even lower interest rates.

A central bank buying its own country’s debt is often known as quantitative easing, leading analysts to dub the potential new efforts QE2.

If top-tier U.S. economic reports -- like the ISM data on Friday and nonfarm payrolls next week -- corroborate the strength in the day’s numbers, that “could start to challenge the view that QE2 is a done deal,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

Spain, Ireland

The single currency initially dipped after Moody’s Investors Service delivered a long-awaited downgrade to Spain’s sovereign credit rating but said the outlook on the new Aa1 rating was stable.Read about Spain’s downgrade.

“Ratings don’t matter, it is the outlook that matters,” which is why Spanish bonds rallied, said Andrew Brenner, head of emerging markets at Guggenheim Securities.

The restructuring “was viewed as positive as no senior debt will take a hit,” Brenner said.

The euro soon bounced back, however, as Germany’s Federal Labor Office said the number of unemployed fell more than economists had forecast. See more on German labor data.

“The chronic sovereign debt problems of the euro-zone periphery economies are having less and less negative impact on the euro as the market focuses instead on the better-than-expected performance from the much more important core European economies of Germany and France,” said Boris Schlossberg, director of currency research at GFT.

“To that end today’s German unemployment data is just one more data point of support for euro bulls,” he said.

Japan, China

Against the Japanese yen
USDJPY, +0.10%
the dollar fell to ¥83.53, paring a loss but still down from ¥83.67 late Wednesday.

Japan’s Ministry of Finance said Thursday that it sold ¥2.125 trillion ($25.5 billion) when it intervened directly in the foreign-exchange markets in September, according to news reports. Read about Japan’s intervention.

Japanese officials had intervened when the dollar fell under ¥83.

The dollar has slipped 0.8% against the yen in September, its fifth monthly loss.

Also in the spotlight in Asia, China pushed its currency lower and set the midpoint of the yuan’s trading range at 6.7011 yuan to the dollar
USDCNY, -0.1279%
up from 6.6936 yuan on Wednesday.

The move followed the U.S. House of Representatives’ approval of legislation late Wednesday threatening duties on Chinese exports if Beijing doesn’t allow the yuan to appreciate against the greenback. The U.S. Senate is not expected to support the bill. Read more on U.S. House approval of yuan bill.

Spillover effect?

The move by the House of Representatives late Wednesday could put some pressure on the Australian dollar in the near term, Schlossberg said.

“For now the issue is largely symbolic as markets do not anticipate that the Senate will pass the bill before the election season recess,” he said.

“However, if political pressures in Washington continue to escalate, signaling the start of a possible trade war between the U.S. and China, the Australian dollar/U.S. dollar [currency pair] may well be the first casualty of this conflict given Australia’s strong reliance on Chinese demand,” Schlossberg added.

The Australian dollar
AUDUSD, -0.0389%
headed down again after a brief rebound, losing 0.5% to 96.69 U.S. cents. It fell as low as 96.24 U.S. cents earlier. Pressure earlier also stemmed from weak data on building approvals and private-lending growth, said strategists at UBS.

Maybe no on Q.E.

The British pound
GBPUSD, +0.1141%
rose as high as $1.5922 earlier, attributed in part to remarks by Adam Posen, a member of the Bank of England’s Monetary Policy Committee, who was quoted in a Yorkshire Post report as saying that he could be talked out of calling for additional monetary stimulus when the panel meets next week.

The pound was pressured earlier in the week after Posen, in a speech, said there was a “clear” case in favor of the Bank of England putting its quantitative-easing program of bond purchases back into effect. Read earlier story about Posen.

Sterling recently dropped 0.6% to $1.5705. The euro turned up by 0.6% to buy 86.86 pence.

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